India’s Finance Minister will hold high level economic talks next week with U.S. government and business leaders in Washington. Both governments are looking at ways to step up trade and investment.
Pranab Mukherjee’s talks with U.S Treasury Secretary Timothy Geithner and business executives come at a time when India’s economy is slowing as it grapples with high inflation, rising interest rates, and corruption scandals.
Foreign investment
Analysts say Mukherjee will seek to assure foreign investors in Washington that India remains an attractive investment destination despite these challenges, and its economy will grow at a buoyant pace despite the slight slowdown.
Anjan Roy, an economist at the Federation of Indian Chambers of Commerce and Industry, says trade and investment between India and the United States, though growing, is considered below potential considering the size of their economies.
“So far as trade is concerned, it is not much to write home about, it is not too high I must say," said Roy.
For India, the priority is to win more foreign direct investment, particularly in its infrastructure sector. New Delhi needs billions of dollars to build highways, ports and industrial plants as its economy grows at over eight percent. But foreign investment in the past year actually declined, raising some worries.
Closed economy
Part of the reason is that many sectors of India’s economy remain closed, such as retail and insurance.
Analysts say Minister Mukherjee will likely face calls from the United States to open up these two sectors, which are considered key growth markets for U.S. companies. At the moment, India only allows foreign direct investment in single brand retail.
Mukherjee is expected to assure investors that India is trying to build a political consensus around the contentious issue of opening up its economy.
However, economist Roy warns that it will still take time for India to allow retail giants such as Walmart to enter the country.
“These are being talked about, discussed very deeply in India," he said. "It is very difficult to give out very quick policy responses on these things because political ramifications and political compulsions are there. But I am sure we are making some progress towards opening up.”
Economic reforms
India's congress-led government was expected to introduce economic reforms after winning a second term in 2009. But under pressure from a series of corruption scandals, it is taking a cautious approach to further economic liberalization.
Mukherjee’s visit to the United States is part of a high-level economic dialogue started by the two countries two years ago.
India-U.S. trade grossed $45 billion last year. Analysts say trade volumes in the coming years will increase, largely due to purchase of defense equipment by India from the United States. Earlier this month, India approved its biggest defense deal with the United States - the purchase of 10 Boeing transport aircraft.
